• tv  vr  'tdBESwtt  * 


United  States  Circuit  Court,  Southern  District  of 


i The  United  States  of  America 


v. 


The  American  Tobacco  Company  and  Others. 


BEFORE  LACOMBE , COXE,  WARD,  AND  NOYES, 

CIRCUIT  JUDGES . 


OPINION  OF  THE  COURT  ON  HEARING  OF  APPLICATION 
FOR  APPROVAL  OF  PLAN  OF  DISINTEGRATION. 


NOVEMBER  8,  1911. 


. ! ■' 


United  States  Circuit  Court,  Southern  District  of 
New  York. 


The  United  States  of  America 

v. 

The  American  Tobacco  Company  and  Others. 


BEFORE  LACOMBE,  COXE,  WARD,  AND  NOYES,  CIRCUIT 


JUDGES . 


In  compliance  with  the  directions  of  the  Supreme 
Court  we  have  heard  the  parties  upon  a plan  proposed 
^ by  the  American  Tobacco  Company  for  “ dissolving 
< The  combination  and  for  recreating  out  of  the  elements 


\ now  composing  it  a new  condition  which  shall  honestly 
^>be  in  harmony  with  and  not  repugnant  to  the  law.” 


The  proposed  plan  was  filed  two  weeks  before  this 
hearing,  at  wdiich  not  only  the  parties  but  any  persons 
interested  who  might  wish  to  express  their  views  as 
friends  of  the  court  were  given  opportunity  so  to  do. 

While  the  plan  is  correctly  described  as  the  pro- 
posed plan  of  the  American  Tobacco  Company  since 
that  corporation  and  the  other  defendants  offer  to 
carry  it  out,  it  should  be  remembered  that  in  its 
present  form  the  plan  is  the  fruit  of  much  discussion. 

15646—11 — 1 


2 


For  upward  of  two  months  successive  conferences,  in 
the  presence  of  two  or  more  members  of  the  court, 
were  had  between  the  Attorney  General  and  the 
counsel  and  representatives  of  the  Tobacco  Company. 
Objections  of  the  Attorney  General  were  followed  by 
modifications  of  the  plan,  some  of  its  most  drastic 
provisions  being  inserted  in  order  to  meet  or  avoid 
his  criticisms.  When  a point  was  reached  where 
such  adjustment  of  differences  ceased  to  be  practi- 
cable, a time  was  fixed  for  a hearing  before  the  whole 
court  upon  the  matters  remaining  in  dispute.  It 
was  in  the  course  of  these  conferences  that  a very 
material  reduction  of  the  holdings  of  the  American 
Tobacco  Company  was  brought  about.  According 
to  the  plan  as  originally  proposed  it  was  to  retain  in 
its  treasury  in  addition  to  its  working  capital,  suffi- 
cient to  pay  the  outstanding  bonds  when  they  ma- 
tured, about  $104,000,000.  To  this  the  Attorney 
General  at  once  objected,  insisting  that  the  posses- 
sion of  this  enormous  amount  of  money  over  and 
above  its  capital  invested  in  the  tobacco  business 
was  fraught  with  possibilities  of  evil  use,  that  it 
would  be  a standing  menace  to  all  competitors,  and 
could  not  be  tolerated.  While  not  fully  conceding 
the  justice  of  this  criticism,  counsel  for  defendants 
promptly  stated  that  they  would  undertake  to  elimi- 
nate it.  After  discussion  of  two  different  methods 
of  so  doing,  which  themselves  presented  other  diffi- 
culties, defendants  at  the  last  conference  submitted 
the  present  scheme,  whereby  half  of  the  outstanding 
i bonds  would  be  bought  up  (and  canceled)  at  a price 


3 


in  excess  of  their  present  value,  thus  insuring  a 
willing  surrender  of  them  by  present  holders,  and 
for  the  other  half  securities  of  the  new  companies 
would  be  offered,  on  a basis  of  exchange  which  would 
insure  acceptance  of  the  offer.  Since  the  plan  was 
filed  the  market  reports  have  given  quotations  of 
such  bonds  of  the  new  companies  “if  and  when.” 
While  such  reports  are  possibly  not  competent  evi- 
dence in  the  trial  of  a cause  they  seem  to  indicate 
that  if  the  present  plan  be  approved,  a very  brief 
period  will  suffice  for  the  disappearance  of  substan- 
tially all  the  old  bonds  and  the  elimination  from  the 
treasury  of  the  American  Company  of  the  money  or 
securities  required  to  make  them  good  at  maturity. 
Thus  the  menace  of  holding  an  enormous  amount  of 
money  additional  to  what  is  legitimately  used  in  the 
business  of  the  American  Company  will  disappear. 
Upon  the  hearing  committees  representing  a majority 
of  the  holders  of  both  issues  of  bonds  appeared  and 
requested  the  court  to  approve  the  plan.  Out  of  the 
entire  two  issues,  amounting  to  over  $100,000,000. 
one  holder  only  of  ten  4 per  cent  bonds  appeared  to 
object  on  the  ground  that  the  terms  offered  for  sale 
and  exchange  were  not  satisfactory  to  him.  Inas- 
much as  he  is  under  no  obligation  to  accept  the  offer 
if  it  does  not  please  him  and  the  security  for  his 
bonds,  if  the  plan  be  carried  out,  will  be  ample,  no 
modification  of  the  plan  is  necessary  to  protect  him 
or  others  similarly  situated.  A committee  repre- 
senting a majority  of  the  preferred  stockholders  also 
asked  that  the  proposed  plan  be  approved. 


4 


The  plan  contains  very  many  provisions,  neces- 
sarily so  because  of  the  intricate  nature  of  the  com- 
bination of  corporations  about  to  be  disrupted.  It 
would  unreasonably  extend  this  opinion  to  undertake 
to  epitomize  these  provisions.  An  admirably  clear 
summary  of  them  has  been  filed  by  the  proponents 
and  may  be  considered  as  in  the  nature  of  a recital 
to  this  opinion.  Besides  distributing  among  its 
common  stockholders  a large  amount  of  the  stock  it 
now  holds  in  other  companies,  the  American  Tobacco 
Company  will  be  split  into  three  companies  which, 
with  a fourth  set  free  of  control  by  the  American 
I Company  through  such  distribution  of  stock,  will 
divide  between  themselves  the  property  now  owned 
and  the  business  now  done  by  the  American  Company. 
Each  of  these  four  companies  will  thus  have  a business 
which,  in  every  branch  of  it,  will  fall  materially  below 
a percentage  sufficient  to  control.  There  are  similar 
disruptions  among  the  accessory  companies,  for  the 
details  of  which  the  plan  or  the  summary  may  be 
consulted. 

Some  of  those  who  have  been  heard  in  opposition 
insist  that  no  plan  is  practicable,  that  in  conformity 
with  the  statute  as  construed  by  the  Supreme  Court 
the  only  thing  for  this  court  to  do  is  to  seize  the  prop- 
erty through  receivership  and  proceed  to  sell  it. 
This  proposition  need  not  be  discussed ; evidently  the 
Supreme  Court  believed  some  plan  was  practicable, 
or  it  would  not  have  directed  this  court  to  inquire 
into  the  matter. 


5 


Upon  the  hearing  other  plans  for  dissolving  and 
recreating  were  submitted,  plans  not  merely  sug- 
gesting modifications  of  the  one  proposed,  but  differ- 
ing widely  from  it  in  form  and  scope.  One  of  them 
calls  for  a division  into  upward  of  sixty  different 
companies.  Others  for  a distribution  of  properties 
by  specific  allotments  as  in  the  case  of  a partition  of 
real  estate.  No  time  need  be  given  to  a consideration 
of  any  of  these,  since  there  is  no  suggestion  that  the 
defendants  will  adopt  them.  On  the  contrary  coun- 
sel for  the  defendants  expressly  stated  on  the  argu- 
ment that  they  would  not  undertake  to  carry  them 
out.  Presumably  they  might  think  they  might  bet- 
ter take  their  chances  at  receiver’s  sale.  This  court 
has  neither  authority  nor  power  to  carry  out  and 
enforce  any  plan  of  readjustment  without  the  coop- 
eration of  the  owners  of  the  property,  the  holders  of 
these  stocks  and  bonds.  It  would  be  sheer  waste  of 
time,  therefore,  to  consider  any  plan  radically 
different  from  the  one  now  before  us;  if  we  find  this 
plan  would  not  create  the  condition  defined  in  the 
opinion  of  the  Supreme  Court,  or  if  such  modifica- 
tions as  we  may  require  as  a condition  of  giving  our 
approval  are  not  accepted  by  defendants,  we  must 
obey  the  mandate  of  that  court;  must  seize  the 
property  and  sell  it  at  public  auction,  in  appropriate 
and  convenient  lots,  applying  the  proceeds  of  the 
sale  to  the  payment  of  the  debts  (including  the 
mortgages)  or  of  such  dividend  thereon  as  the  pro- 
ceeds may  allow,  turning  over  the  surplus,  if  any,  to 
the  owners  of  the  equity. 


6 


The  main  objection  to  the  proposed  plan,  an  ob- 
jection found  in  every  document  filed  by  those  who 
were  given  permission  to  be  heard  and  which  seemed 
to  be  principally  relied  on  by  those  who  spoke,  is  what 
is  referred  to  as  “common  stockholding.”  For  in- 
stance under  the  plan  two  new  companies  “Lorillard” 
and  “Liggett  & Myers’ ’ will  be  formed  out  of  the 
American,  which  will  itself,  thus  reduced  in  size,  con- 
tinue in  existence.  The  same  individuals,  the  present 
1,800  or  more  common  stockholders  of  the  American, 
will  hold  the  entire  common  stock  of  each  of  the  other 
two  companies.  A similar  condition  will  exist  with 
some,  at  least,  of  the  other  companies.  It  is  con- 
tended, that  although  under  such  circumstances  there 
may  be  potential  competition,  no  real  competition 
can  exist.  With  this  argument  or  the  reply  to  it,  it 
seems  to  me  this  court  is  not  concerned.  In  two 
recent  cases  (the  Northern  Securities  and  the  Stand- 
ard Oil)  the  Supreme  Court  found  a combination  of 
corporations  to  have  offended  against  the  antitrust 
act.  As  a result  of  such  finding  there  was  a disinte- 
gration of  the  combination,  in  each  the  disintegration 
left  the  stock  of  the  separate  entities  into  which  the 
group  was  split  in  the  hands  of  the  same  body  of 
individual  stockholders.  Since  there  was  no  dis- 
approval of  this  method  of  disintegration  indicated 
in  either  opinion,  it  would  seem  that  the  question 
whether  or  not  common  stockholding  is  “repugnant 
to  the  law,”  that  is  repugnant  to  the  antitrust  act, 
has  been  settled  for  this  court  by  controlling  author- 
ity. 


7 


It  is  true  that  the  Supreme  Court  did  not  enter 
into  any  discussion  of  this  question  of  “common 
ownership,”  but  its  existence  in  both  cases  was  so 
plainly  manifest  that  it  is  difficult  to  understand  how 
the  court  could  have  approved  of  the  new  arrange- 
ment unless  it  was  satisfied  that  such  arrangement 
did  not  contain  the  same  vice  as  the  old  one,  which 
thev  held  must  be  terminated.  If  this  be  so,  dis- 
cussion  here  of  the  question  whether  or  not  common 
ownership  is  within  the  prohibition  of  the  statute 
would  seem  to  be  academic.  This  also  seems  to  be 
the  view  of  the  Government,  which  does  not  discuss 
common  stockholding. 

The  next  objection  presented  by  those,  not  parties, 
who  have  been  heard  is  directed  to  the  size  of  the 
companies.  As  an  illustration,  it  appears  from  the 
statistics  submitted  that  of  the  total  smoking-tobacco 
business  of  the  country  four  companies  will  have  the 
following  percentages:  American,  33.08;  Liggett  & 
Myers,  20.05;  Lorillard,  22.82;  Reynolds,  2.66.  It  is 
insisted  that  these  large  companies  should  be  still 
further  disintegrated,  The  plan  is  further  criticized 
because  each  of  these  companies  is  described  as  “ com- 
pletely equipped  for  the  conduct  of  a large  tobacco 
business,”  whereas  existing  independent  concerns  are 
none  of  them  so  equipped,  and  it  is  argued  that  there 
can  be  no  effective  competition  until  the  several  con- 
cerns which  are  to  carry  forward  the  business  of  the 
trust  are  put  into  the  same  condition  as  to  size  and 
equipment  as  now  prevails  among  existing  independ- 
ent concerns.  It  is  further  contended  that  no  com- 


8 


pany  engaged  in  the  plug-tobacco  business  should  be 
allowed  to  take  over  any  cigarette  or  cigar  business; 
that  a company  taking  a cigarette  business  should  not 
take  over  any  smoking-tobacco,  plug,  or  cigar  business 
and  so  on;  that  there  should  be  a rearrangement  of 
factories  and  brands,  an  intricate  subject,  which  is 
fully  discussed  in  a report  from  the  Bureau  of  Cor- 
porations, filed  at  the  hearing.  Manifestly,  the  mi- 
nuter the  fragments  into  which  the  old  combination 
is  split,  and  the  more  they  are  prohibited  from  con- 
ducting business  as  other  companies  are  free  to  con- 
duct it,  the  less  will  be  their  ability  to  compete  with 
such  other  companies. 

This  whole  line  of  argument  deals  with  the  eco- 
nomics of  the  tobacco  business.  No  doubt  the  novel 
problem  presented  to  this  court  is  connected  with 
questions  of  economics  as  well  as  with  question  of 
law.  But  this  is  a court  of  law,  not  a commerce  com- 
mission, and  the  legal  side  of  the  proposition  would 
seem  to  be  the  controlling  one.  The  true  way  to 
state  the  problem,  as  I understand  it,  is  this : Assume 
that  a group  of  corporations  engaged  in  some  business 
which  comes  within  the  domain  of  interstate  com- 
merce is  charged  before  the  Supreme  Court  with 
violation  of  the  antitrust  act.  Assume  that  they 
are  organized  as  the  companies  provided  for  in  this 
plan  will  be;  that  they  are  similarly  capitalized; 
that  the  business  they  do  is  similar  in  amount  and 
similarly  distributed;  that  their  stock  is  similarly 
held,  with  the  natural  temptation  to  cooperate  which 
such  common  stockholding  may  be  calculated  to 


9 


induce,  but  are  also  curbed  and  restrained  from 
yielding  to  such  temptation,  as  these  companies  will 
be  by  the  injunction  which  will  accompany  our  ap- 
proval of  this  plan,  a permanent  injunction  binding 
all  defendants  in  this  suit  and  their  privies  and  all 
new  companies  created  under  the  plan  and  their 
privies.  Would  the  Supreme  Court  hold  that  the 
condition  thus  presented  was  “ repugnant  to  the 
law” — that  is,  repugnant  to  the  antitrust  statute ? 
A long  and  careful  study  of  the  last  two  deliverances 
of  that  court  (in  the  Standard  Oil  case  and  in  this 
case)  has  convinced  me  that  its  answer  to  that  ques- 
tion would  be  in  the  negative.  I may  be  wrong  in 
the  interpretation  of  its  deliverances,  if  so  it  will 
not  be  for  the  first  time,  but  since  such  is  my  con- 
viction there  would  seem  to  be  no  necessity  for  dis- 
cussing, on  its  economic  side,  a question  already 
settled  by  controlling  authority. 

Leaving  for  a moment  the  objections  and  sugges- 
tions of  persons  not  parties,  those  of  the  Attorney 
General  may  be  next  considered.  He  does  not  attack 
the  general  features  of  the  proposed  plan  with  its 
division  of  the  business  controlled  by  the  old  com- 
pany among  fourteen  companies,  nor  does  he  con- 
tend that  “ common  stockholding”  is  in  and  by  itself 
an  infraction  of  the  antitrust  statute.  His  suggested 
modifications  are  directed,  mainly  toward  providing 
such  safeguards  for  the  future  that  the  fourteen  com- 
panies may  not  so  conduct  their  operations  as  to 
violate  the  provisions  of  the  statute.  He  requests  that 

the  following  conditions  to  any  approval  of  the  plan 
15646—11 — 2 


10 


submitted  be  imposed;  presumably  the  more  con- 
venient way  to  impose  most  of  such  restrictions 
would  be  by  injunctive  provisions  incorporated  in  the 
final  decree. 

(1)  That  during  a period  of  not  less  than  five  years, 
ho  one  of  the  corporations  among  which  the  properties 
and  businesses  now  in  the  combination  are  to  be  dis- 
tributed shall  have  any  officer  or  director  who  is  also 
an  officer  or  director  in  any  other  of  such  corpora- 
tions. This  suggestion  is  approved. 

(2)  That  the  plan  be  so  modified  that  the  principal 
company  shall  dispose  of  and,  when  the  disintegration 
is  complete  shall  not  retain  any  of  the  stocks  of  any 
of  the  accessory  companies,  and  each  of  the  acces- 
sory companies  shall  dispose  of  all  of  the  stocks  held 
by  it  of  the  principal  and  of  each  of  the  other  acces- 
sory companies  held  by  it. 

The  general  proposition  here  advanced  is  sound 
and  is  approved,  but  the  last  clause  seems  to  be 
already  provided  for  and  there  is  probably  an  ex- 
ception or  two  necessary  to  be  made  in  the  first 
clause,  by  reason  of  the  rights  of  outstanding  stock- 
holders not  connected  with  the  American  Tobacco 
Company.  Counsel  can  probably  agree  as  to  a phrase- 
ology which  will  conform  more  especially  to  the 
facts. 

(3)  That  no  one  of  the  corporations  among  which 
the  property  and  businesses  now  in  the  combination 
are  to  be  distributed  shall,  during  the  same  period, 
retain  or  employ  the  same  agency  for  the  purchase 
of  tobacco  leaf  or  other  raw  material,  or  for  the  sale 


11 


of  tobacco  or  other  products,  as  that  of  any  other  of 
such  corporations. 

There  should  be  a change  of  phraseology  in  this 
and  some  of  the  other  requests.  It  is  not  entirely 
clear  whether  the  prohibition  is  directed  to  all  the 
14  companies  or  only  to  a part  of  them;  it  should 
apply  to  all.  After  the  words  “agency  for  the  pur- 
chase” there  should  be  added  the  words  “in  the 
United  States.”  This  request,  with  such  modifi- 
cations is  approved,  and  counsel  may  agree  on  a 
phraseology  which  will  cover  any  possible  excep- 
tions arising  from  the  allotments  in  the  plan. 

(4)  That  no  one  of  the  corporations  among  which 
the  property  and  businesses  now  in  the  combina- 
tion are  to  be  distributed  shall  retain  or  employ  the 
same  clerical  or  other  organization,  or  occupy  the 
same  office  or  offices  as  any  other  of  the  said  corpo- 
rations. 

This  is  approved,  with  modifications  similar  to 
those  indicated  as  to  the  request  next  above. 

(5)  That  no  one  of  the  corporations  among  which 
the  properties  and  businesses  now  in  the  combina- 
tion are  to  be  distributed  shall  retain  and  hold  capi- 
tal stock  in  any  other  corporation,  any  part  of  whose 
stock  is  also  retained  and  held  by  any  of  the  other 
of  the  corporations  among  which  such  properties  and 
businesses  are  to  be  distributed,  or  shall  purchase  or 
acquire  any  stock  in  any  other  of  such  corporations. 

This  is  approved,  but  should  contain  an  excep- 
tion, upon  which  it  is  understood  counsel  are  in 
accord,  in  the  single  case  of  the  Porto  Rican  Leaf 


12 


Tobacco  Company.  Counsel  may  agree  upon  the 
phraseology  to  be  inserted  in  the  decree. 

(6)  That  no  one  of  the  corporations  among  which 
the  properties  and  businesses  now  in  the  combination 
are  to  be  distributed  shall,  during  a period  of  five 
years,  directly  or  indirectly  acquire  any  stock  in  any 
one  of  the  others  of  said  corporations,  or  purchase 
or  acquire  the  property  or  business,  or  both,  of  any 
other  of  said  corporations. 

With  a change  of  phraseology  which  will  make  this 
applicable  to  all  the  fourteen  companies  this  request 
is  approved.  A similar  request  is  found  among  those 
submitted  by  other  objectors,  with  an  additional 
clause  forbidding  any  one  of  these  fourteen  companies 
“from  making  loans  or  otherwise  extending  credit 
to”  any  of  the  others.  This  suggestion  is  a proper 
one  and  may  be  embodied  in  the  Attorney  General's 
request. 

(7)  To  the  end  that  the  twenty-nine  individual 
defendants  in  this  suit  shall  not  increase  their  control 
over  any  of  the  corporations  among  W'hich  the  prop- 
erties and  businesses  now7  in  the  combination  are  to 
be  distributed,  pursuant  to  the  plan  that  such  defend- 
ants be  severally  enjoined  from,  at  any  time  within 
five  years  from  the  date  of  the  decree,  acquiring, 
directly  or  indirectly,  the  legal  or  equitable  owner- 
ship of  any  amount  of  stock  in  any  one  of  said  cor- 
porations in  addition  to  the  amounts  which  they 
will  respectively  hold  if  and  wben  the  plan  shall  have 
been  carried  out,  as  proposed. 


13 


This  is  approved  but  the  phraseology  should  be 
modified  as  already  indicated. 

Upon  the  argument  the  Attorney  General  stated 
that  he  would  be  willing  to  substitute  “ three  years” 
for  “ five  years.”  Such  change  seems  desirable  and  it 
would  probably  result  in  a more  rapid  distribution  of 
present  holdings.  There  should  also  be  a proviso 
excepting  from  the  operation  of  this  prohibition  any 
and  all  sales  and  purchases  by  these  twenty-nine  in- 
dividuals inter-sese , the  phraseology  of  which  counsel 
may  agree  upon. 

It  may  not  be  a wise  public  policy  to  make  it  easy 
for  foreigners  to  take  over  the  control  of  the  British 
American  Company  with  its  large  and  growing  busi- 
ness in  foreign  countries,  notably  in  South  Africa 
and  the  Far  East,  now  in  American  hands.  That  is 
what  would  probably  happen  if  the  twenty-nine 
defendants  be  prohibited  from  increasing  their  hold- 
ings of  that  stock.  We  do  not  undertake  to  determine 
this  question  of  public  policy,  which  is  one  for  the 
consideration  of  the  executive  branch  of  the  Govern- 
ment. It  is  sufficient  to  say  that  a further  exception 
of  the  shares  of  that  company  from  the  operation  of 
this  paragraph  would  not,  in  our  opinion,  make  the 
plan  repugnant  to  the  law. 

(8)  That  the  preferred  stock  of  the  American  Cigar 
Company  aggregating  in  book  value  $2,530,216.69, 
held  by  the  American  Snuff  Company,  and  the  stock 
and  bonds  of  American  Tobacco  Company,  held  by 
the  American  Snuff  Company,  referred  to  on  page 
2 of  the  plan  (footnote  a),  be  sold  or  otherwise  dis- 
posed of  within  one  year,  instead  of  three  years,  as 


14 


proposed  in  the  plan,  with  leave  to  defendants  to 
apply  to  the  court  to  extend  such  period  for  not  more 
than  two  years. 

There  seems  to  be  no  good  reason  for  modifying 
the  plan  in  this  particular. 

(9)  That  in  the  distribution  of  the  properties  and 
businesses  now  held  in  the  combination  pursuant  to 
the  plan  of  disintegration,  no  corporation  shall  be 
allowed  to  acquire  property,  tangible  or  intangible, 
which  would  invest  it  with  as  much  as  forty  per  cent 
in  volume  or  in  value  of  any  particular  line  of  the 
tobacco  business. 

This  is  substantially  what  the  plan  now  provides. 
The  few  instances  in  which  the  40  per  cent  limitation 
is  exceeded  result  from  inherent  difficulties  of  distri- 
bution, which  it  seems  impracticable  to  eliminate. 
These  instances  are  so  few  and  the  excess  in  each 
instance  so  small  as  to  be  fairly  negligible.  The 
request  is  denied. 

(10)  That  the  stocks  of  the  Liggett  & Myers 
Tobacco  Company  and  P.  Lorillard  Company,  pro- 
vided to  be  in  accordance  with  the  plan,  be  deposited 
with  the  Guaranty  Trust  Company  of  New  York, 
as  the  agent  or  depository  of  this  court  in  this  cause 
for  the  purposes  specified  in  the  plan,  and  that  at  the 
end  of  the  period  designated  the  court  make  an 
order  for  their  further  disposition.  That  in  the 
meantime  no  voting  right,  with  respect  to  such 
stock,  shall  be  exercised  except  as  the  court  may  from 
time  to  time  order. 

All  of  this  is  already  sufficiently  provided  for  in  the 
plan. 


15 


(11)  That  all  the  covenants  in  any  way  restricting 
the  right  of  any  company  or  individual  in  the  combi- 
nation to  buy,  manufacture,  or  sell  tobacco  or  its 
products  should  be  rescinded  by  the  affirmative 
action  of  the  respective  parties  thereto  who  are  parties 
to  this  suit. 

This  is  approved,  except  that  there  should  be  a 
proviso  excepting  certain  foreign  business,  the  phrase- 
ology of  which  counsel  may  agree  upon. 

(12)  That  the  action  proposed  in  subdivision  C of 
the  plan  on  page  6 terminating  certain  covenants  be 
amplified  so  as  to  include  like  action  with  respect  to 
all  covenants  not  only  concerning  the  tobacco  busi- 
ness, but  any  other  business  which  is  in  any  way 
embraced  in  the  combination. 

This  is  approved ; we  understand  the  proposed  plan 
as  so  providing  in  spirit,  if  not  in  letter. 

(13)  That  all  contracts  or  covenants  between  the 
American  Tobacco  Company,  or  any  other  companies 
in  the  combination  and  the  British- American  Tobacco 
Company  giving  to  the  latter  company  the  exclusive 
right  to  manufacture  or  sell  brands  belonging  to  any 
of  the  companies  in  the  combination,  be  rescinded  or 
otherwise  terminated. 

The  brands  thus  sold  passed  to  the  purchaser  for 
a valuable  consideration  under  an  executed  contract. 
The  request  is  denied. 

The  fourteenth  request  deals  with  the  United 
Cigars  Company,  a subject  which  will  be  treated  sepa- 
rately infra. 


16 


The  Attorney  General  further  asks  for  a comprehen- 
sive injunction  to  be  incorporated  in  the  final  decree 
providing — 

That  the  defendants  named  in  the  petition 
their  respective  officers,  directors,  agents, 
servants,  and  employees,  be  forever  enjoined 
and  prohibited  from  continuing  or  carrying 
into  further  effect  the  combination  adjudged 
illegal  by  the  Supreme  Court,  and  from  enter- 
ing into  or  forming  any  like  combination  or 
conspiracy,  the  effect  of  which  is  or  will  be  to 
restrain  commerce  in  tobacco  or  its  products  or 
in  articles  used  in  connection  with  the  manu- 
facture and  trade  in  tobacco  and  its  products, 
among  the  States  or  in  the  Territories  or  with 
foreign  nations,  or  to  prolong  the  unlawful 
monopoly  of  such  commerce  obtained  and  pos- 
sessed by  the  defendants,  as  adjudged  herein  in 
violation  of  the  act  of  Congress  approved  July 
2,  1890,  either — 

1 . By  causing  the  conveyance  of  the  physical 
property  and  business  of  any  of  the  corpora- 
tions among  which  the  properties  and  busi- 
nesses now  in  the  combination  are  to  be  dis- 
tributed to  any  other  of  said  corporations; 
by  placing  the  stocks  of  any  one  or  more  of 
said  corporations  in  the  hands  of  voting 
trustees  or  controlling  the  voting  power  of 
such  stocks  by  any  similar  device;  or 

2.  By  making  any  express  or  implied  agree- 
ment or  arrangements  together  or  one  with 
another  like  those  adjudged  illegal  by  the 
Supreme  Court  in  this  cause,  relative  to  the 
control  or  management  of  any  of  said  corpo- 


17 


rations,  or  the  price  or  terms  of  purchase,  or  of 
sale,  of  tobacco  or  any  of  its  products,  or  the 
supplies  or  other  product  dealt  with  in  con- 
nection with  the  tobacco  business,  or  relative 
to  the  purchase,  sale,  transportation  or  manu- 
facture of  tobacco,  or  its  product  or  supplies 
or  other  product  dealt  with  as  aforesaid,  by 
any  of  the  parties  hereto,  which  will  have  a 
like  effect  in  restraint  of  commerce  among 
the  States,  in  the  Territories  and  with  foreign 
nations  to  that  of  the  combination  the  opera- 
tion of  which  is  enjoined  in  this  cause;  or  by 
making  any  agreement  or  arrangement  of  any 
kind  with  any  other  of  such  corporations 
under  which  trade  or  business  is  apportioned 
between  such  corporations,  in  respect  either 
to  customers  or  localities;  or  by  any  of  such  cor- 
porations doing  business  directly  or  indirectly, 
under  any  other  than  their  own  corporate 
respective  names;  by  refusing  to  sell  to  any 
jobber  any  brands  of  any  tobacco  product 
manufactured  by  it  except  upon  condition 
that  such  jobber  shall  purchase  from  the 
vendor  some  other  brand  or  product,  also 
manufactured  and  sold  by  it;  or 

3.  By  the  British  American  Company  and 
the  Imperial  Company  employing  a common 
agent  for  the  purchase  of  leaf  tobacco  in  the 
United  States,  or  by  either  of  said  two  com- 
panies uniting  with  any  of  the  corporations 
among  which  the  properties  and  businesses 
now  in  the  combination  are  to  be  distributed, 
in  the  employment  of  a common  agent  for  the 
purchase  of  tobacco  leaf. 

15646—11 — 3 


18 


The  clause  in  the  latter  part  of  subdivision  2 as 
to  each  company  doing  business  under  its  own  cor- 
porate name  should  be  made  more  specific,  especially 
in  view  of  the  requests  of  other  objectors  that  to- 
bacco products  should  be  sold  only  under  the  name  of 
the  owner.  There  should  be  nothing  in  the  decree 
destroying  the  value  of  a brand,  or  altering  the  clas- 
sification of  products  in  the  records  of  the  Internal- 
Revenue  Bureau.  Counsel  may  agree  upon  a modi- 
fied phraseology  to  [avoid  any  such  difficulty  leaving 
the  fourteen  companies  to  pursue  all  ordinary 
methods  prevailing  in  the  tobacco  business. 

The  clause  as  to  refusing  to  sell  to  any  jobber 
should  be  reconstructed  so  as  not  to  prohibit  any  of 
the  fourteen  companies  from  methods  of  business 
which  are  open  to  and  practiced  by  all  their  com- 
petitors. Counsel  m&y  agree  to  a phraseology  which 
will  formulate  this  expression  of  opinion. 

Clause  3 should  be  amended  by  adding  the  words 
“ within  the  United  States.” 

With  these  modifications  the  entire  section  provid- 
ing for  injunctions  is  approved. 

Returning  now  to  the  requests  of  the  various  other 
objectors  we  find  that  nearly  all  of  them  are  covered 
by  those  of  the  Attorney  General,  or  have  been 
already  disposed  of  by  the  discussion  of  the  general 
features  of  the  plan.  Among  those  not  so  disposed 
of  are  noted  requests  that  the  fourteen  companies 
be  enjoined: 

(a)  From  giving  away  or  selling  at  or  below  the 
cost  of  manufacture  and  distribution  any  of  its 


19 


products;  from  giving  rebates,  allowances,  or  other 
special  inducements  to  purchasers  or  users  and  from 
refusing  to  sell  to  any  jobber  any  special  brand  he 
may  require. 

The  record  in  this  case  shows  that  these  are  the 
common  methods  of  the  tobacco  business,  prac- 
ticed by  all  alike.  It  is  only  by  giving  away  samples, 
or  by  offering  on  favorable  terms,  irrespective  of 
cost,  that  new  brands  of  tobacco  products  can  be 
introduced  or  old  brands  extended  into  new  terri- 
tory. All  other  companies  are  free  to  employ  these 
methods,  which  are  obnoxious  to  no  statute  and  there 
is  no  reason  why  the  fourteen  companies  should  be 
forbidden  to  do  so.  This  request  is  denied. 

( b ) From  espionage  on  the  business  of  any  com- 
petitor, from  bribery  of  the  employees  of  such  com- 
petitor, and  from  obtaining  information  from  any 
United  States  revenue  official. 

Why  any  one  individual  or  corporation  engaged 
in  this  business  may  not  acquire  such  information 
as  he  or  it  can  legitimately  obtain  from  private  or 
public  sources  as  to  the  business  of  a competitor 
we  fail  to  see.  When  illegitimate  methods  are 
proved  they  may  be  dealt  with.  This  request  is 
denied. 

(c)  That  every  independent  or  other  person  in- 
terested should  in  the  event  of  any  alleged  violation 
of  the  injunction,  have  liberty  to  apply  to  the  court 
for  protection  and  for  such  action  as  may  appear  to 
be  appropriate. 


20 


The  result  of  such  a provision  would  be  to  over- 
whelm the  court  with  a multitude  of  applications, 
mainly  frivolous.  Anyone  who  feels  aggrieved  should 
take  his  complaint  to  the  Attorney  General,  who 
will  winnow  the  wheat  from  the  chaff.  If  he  finds 
substance  in  any  allegation  he  can  bring  it  before 
the  court. 

This  request  is  denied. 

(d)  It  is  requested  that  the  majority  stock  of  the 
Lipfort  Scales  Company,  now  owned  by  the  R.  J. 
Reynolds  Tobacco  Company  be  sold,  “with  an  in- 
junction against  any  present  stockholder  in  the 
Reynolds  Company,  in  the  American  Company  or 
in  any  of  the  allied  companies,  from  purchasing  at 
such  sale.”  A similar  request  for  a sale,  under  like 
restrictions,  is  made  as  to  the  stock  of  five  other 
companies  now  owned  by  the  American  Tobacco 
Company. 

This  request  is  denied  for  reasons  set  forth  infra 
in  discussing  the  disposition  of  the  stock  of  the 
United  Cigar  Stores  Company. 

(e)  The  attorney  general  of  the  State  of  New  York 
suggests  that  the  proposed  plan  may  violate  the 
antimonopoly  laws  of  this  State.  He  does  not  indi- 
cate in  what  respect  it  will  do  so. 

We  think  it  unnecessary  to  make  any  investiga- 
tion on  the  line  suggested.  Our  approval  of  this 
plan  will  not  secure  to  these  fourteen  companies 
immunity  for  violation  of  the  laws  of  this  or  of  any 
other  State. 


21 


Referring  next  to  the  defendant  the  Imperial 
Tobacco  Company,  the  Attorney  General  asks  that 
the  plan  shall  include  provisions  terminating  all  exec- 
utory contracts  or  agreements  between  the  Imperial 
Tobacco  Company,  on  the  one  hand,  and  the  Ameri- 
can Tobacco  Company  and  the  British  American 
Tobacco  Company  and  each  and  every  of  the  cor- 
porations parties  defendant  hereto,  on  the  other; 
and  also  a provision  enjoining  the  said  American 
Tobacco  Company  from  uniting  with  the  British 
American  Company  in  the  employment  of  a common 
agent  for  the  purchase  of  leaf  tobacco  in  the  United 
States,  and  from  uniting  with  any  of  the  corpora- 
tions among  which  the  properties  and  business  now 
in  the  combination  are  to  be  distributed,  in  the 
employment  of  a common  agent  for  the  purchase  of 
leaf  tobacco  or  any  of  the  products  of  tobacco. 

These  provisions,  of  course,  should  be  restricted  to 
such  as  affect  trade  or  commerce  between  the  States, 
or  between  the  United  States  and  foreign  countries. 
We  understand  that  the  proposed  plan  in  substance 
so  provides;  but  if  there  be  any  doubt  as  to  its  doing 
so,  counsel  may  agree  on  the  form  of  amendments 
which  will  insert  these  provisions. 

The  disposition  of  the  United  Cigars  Stores  Com- 
pany has  been  discussed  by  most  of  the  objectors. 
Those  who  represent  the  independents  insist  that  it 
shall  be  split  up  into  separate  concerns,  “ preferably 
ten” 

It  is  not  one  of  the  so-called  accessory  companies 
and  the  Supreme  Court  has  not  directed  that  it  be 

* 


22 


disintegrated.  Upon  the  trial  much  testimony  was 
taken  as  to  this  company  and  the  question  whether 
or  not  it  was  a combination  obnoxious  to  the  pro- 
visions of  the  antitrust  act  was  carefully  examined. 
We  reached  the  conclusion  unanimously  that  it  was 
not.  A succinct  statement  of  our  reasons  for  reach- 
ing that  conclusion  will  be  found  in  Judge  Coxe’s 
opinion.  (164  F.  R.,  700.)  We  therefore  dismissed 
the  bill  as'  to  that  company.  The  Supreme  Court, 
however,  held  that  we  erred  in  so  doing,  solely  because 
the  American  Tobacco  Company  had  bought  and  held 
two-thirds  of  its  capital  stock,  which  brought  it  into 
the  general  combination.  Under  the  proposed  plan 
all  this  stock  held  by  the  American  Tobacco  Company 
is  to  be  distributed  to  its  own  common  stockholders, 
and  the  sole  ground  upon  which  the  Supreme  Court 
reversed  this  court  is  thus  removed.  The  situation 
will  then  stand,  as  to  all  other  grounds,  as  it  did 
before  and  we  see  no  reason  to  change  the  opinion 
expressed  on  the  original  hearing.  No  new  evidence 
is  offered  except  to  the  fact  that  it  has  in  the  interim 
largely  increased  the  number  of-dts  stores.  Such 
increase  however,  leaves  it  in  control  of  less  than  four 
per  cent  of  the  entire  business  in  which  it  is  engaged. 
The  request  to  disintegrate  is  denied. 

The  Attorney  General  does  not  ask  that  it  be  dis- 
integrated. He  has,  however,  argued  at  length  and 
with  much  earnestness  that  the  continued  growth  of 
this  enterprise  affects  the  small  retail  dealer,  who  is 
without  capital  to  compete  with  it  and  applies  to  the 
Government  to  protect  him.  There  may  come  a time 


23 


when  the  growth  of  this  company  or  the  methods  by 
which  such  growth  is  stimulated  may  bring  it  within 
the  prohibition  of  the  statute.  But  that  time  has  not 
yet  come,  and  the  only  request  the  Attorney  General, 
in  response  to  appeals  for  aid,  has  formulated  is  this : 

That  the  stock  of  the  United  Cigar  Stores  Company 
be  sold  and  distributed  to  parties  other  than  the 
twenty-nine  individual  defendants  or  others  of  the 
common  stockholders  of  the  American  Tobacco  Com- 
pany, to  the  end  that  the  corporation  be  entirely 
separated  from  any  connection  with  the  corporations 
to  which  the  properties  and  businesses  now  in  the 
combination  are  to  be  distributed. 

We  have  no  power  to  grant  any  such  request. 
The  antitrust  act  carefully  enumerates  the  penalties 
for  a violation  of  its  provisions;  fines,  imprisonment, 
injunction  against  continuing  to  transact  interstate 
business,  treble  damages  to  all  persons  injured  by 
an  unlawful  combination,  seizure  and  forfeiture  of 
property  in  course  of  interstate  transportation. 
These  are  certainly  ample  to  enforce  obedience;  by 
confiscation  of  property  in  transit  and  injunction 
against  continuance  in  interstate  business  an  offender 
may  be  put  out  of  active  existence  into  a state  of 
paralysis  as  helpless  as  dissolution.  It  might  be  said 
that  to  these  penalties  the  Supreme  Court  has  added 
another,  a qualified  confiscation  of  property  not  in 
transit  by  receivership  and  forced  sale. 

Nowhere,  however,  is  there  any  authority  for  the 
proposition  that  this  court  may  seize  the  property  of 
private  persons  who  may  have  offended  against  the 


24 


statute  and  sell  it  under  conditions  which  would  pre- 
clude the  holder  of  the  title  or  the  owner  of  the  equity 
from  bidding  at  the  sale  so  as  to  compel  the  purchaser 
to  pay  a reasonable  price  for  it,  or  from  buying  it 
himself  if  no  one  else  will  pay  full  value  for  it.  That 
is  confiscation;  none  the  less  so  because  the  proceeds 
of  such  a sale,  after  paying  outstanding  debts  and 
expenses,  are  to  be  turned  over  to  the  owner.  Until 
Congress  shall  expressly  give  such  power  to  this  court, 
or  until  some  obscure  language  in  its  grant  of  power 
shall  be  construed  by  the  Supreme  Court  as  in  effect 
conveying  such  power,  this  court  is  not  prepared  to 
assume  that  it  possesses  any  such  authority.  The 
request  is  denied. 

The  Ludington  Cigarette  Machine  Company,  which 
has  a decree  for  an  accounting  against  the  Anargyros 
Company,  has  applied  for  relief.  The  stock  of  the 
last-named  company  is  by  the  plan  to  be  transferred 
to  P.  Lorillard  Company.  The  Ludington  Company 
asks  for  the  insertion  of  a provision  which  will  secure 
it  against  any  resulting  difficulty  on  such  ac- 
counting. 

Provision  should  be  made  in  carrying  out  the  plan 
for  keeping  intact  the  books  and  records  of  the 
American  Tobacco  Company,  its  present  constituents 
and  branches,  so  that  they  shall  be  available  and  sub- 
ject to  examination  to  the  same  extent  as  at  present 
in  suits  for  accounting  and  other  existing  litigation. 

The  Attorney  General  further  requests  that  there 
should  be  reserved  to  the  Government  the  right  at 
any  time  within  five  years  from  date  of  entry  to 


25 


apply  to  the  court  for  other  and  further  relief  upon  a 
showing  that,  as  a matter  of  fact,  such  plan  has  not 
resulted  in  creating  a new  condition  which  shall  be 
honestly  in  harmony  with  and  not  repugnant  to  the 

law. 

It  is  not  apparent  that  this  court  has  the  power  so 
to  do.  Had  it  not  been  for  the  mandate  of  the 
Supreme  Court  it  might  be  questioned  whether  a 
Circuit  Court  of  the  United  States  had  any  jurisdic- 
tion to  re-create  a new  group  of  corporations  out  of 
the  elements  into  which  a preexisting  group  of 
corporations  had  been  split  or  to  formulate  a plan  or 
method  according  to  which  individuals,  natural  or 
corporate,  were  to  be  invited  to  invest  money  and 
embark  in  business.  All  such  questions  are  of  course, 
resolved  for  us  by  the  decision  of  the  court  of  last 
resort.  But  neither  in  its  mandate  nor  in  its  opinion 
is  there  any  warrant  for  the  conclusion  that  this 
court  is  to  prescribe  the  temporary  terms  of  a modus 
vivendi,  with  power  to  reassemble  five  years  hence, 
ourselves,  or  our  survivors  and  successors,  and 
modify  those  terms,  while  in  the  interim  by  purchase 
or  exchange  of  these  bonds  upward  of  one  hundred 
millions  of  dollars  worth  of  property  shall  have 
exchanged  hands  irrevocably.  The  only  function 
assigned  to  us  is  to  consider  any  proposed  plan 
which  responsible  parties  engage  to  carry  out,  and 
approve  or  reject  it;  in  the  event  of  rejection  the 
only  alternative  is  injunction,  receivership  and  sale. 
The  time  limit  fixed  in  the  mandate,  six  months  and 
possibly  two  more,  precludes  any  other  construction 
of  its  terms. 


United  States  Circuit  Court,  Southern  District  of  New  York. 


The  United  States  of  America 
v. 

The  American  Tobacco  Company  and  Others. 


BEFORE  LACOMBE,  COXE,  WARD , AND  NOYES , 

CIRCUIT  JUDGES . 

Coxe,  Circuit  Judge  (concurring) : 

I approve  of  the  proposed  plan,  not  because  I 
think  it  perfect,  but  because  it  is  the  best  plan 
attainable.  Perfection  is  impossible.  The  condition 
existing  before  the  illegal  combination  was  formed 
can  not  be  restored;  it  has  gone  beyond  the  hope  of 
recall.'  The  plan  which  we  have  sanctioned  elimi- 
nates the  objectionable  features  prohibited  by  the 
antitrust  act  and  permits  no  unreasonable  or  unlaw- 
ful restraint  of  trade.  In  short,  were  the  various 
corporations  which  the  plan  authorizes  organized 
for  the  first  time  to-day,  they  would  not  be  within 
the  letter  or  the  mischief  of  the  statute.  We  have 
endeavored  while  punishing  the  guilty  defendants — 
corporations  and  individuals — to  remember  that/the 
rights  of  many  innocent  bondholders  and  share- 
holders are  at  stake  and  should  be  protected  as  far 
as  is  consistent  with  a complete  compliance  with 
the  requirements  of  the  law.  The  plan  disintegrates 

(26) 


27 


the  combination,  destroys  the  monopoly  and  liber- 
ates trade;  but  it  accomplishes  all  this  without  a 
wanton  destruction  of  property. 

I have  been  impressed  with  the  evident  intention  of 
counsel  representing  the  various  defendants  to  accept 
without  reservation  the  result  of  the  litigation  and 
faithfully  to  carry  out  the  plan,  not  only  in  letter  but 
in  spirit  as  well.  Many  suggestions  have  been  ad- 
vanced by  counsel  representing  persons  not  parties  to 
the  suit  which  from  an  economic  or  ethical  viewpoint 
are  impeccant.  When,  however,  it  is  remembered  that 
we  are  acting  only  under  the  command  of  the  Supreme 
Court,  limited  as  to  scope  and  time,  it  will  be  seen  how 
powerless  we  are  to  make  conditions  favorable  to  the 
so-called  “ independents,”  when  we  can  exact  no 
reciprocal  obligations  from  them.  We  are  to  ascertain 
and  determine  upon  “ some  plan  or  method  of  dissolv- 
ing the  combination  and  of  re-creating  out  of  the  ele- 
ments now  composing  it,  a new  condition  which  shall 
be  honestly  in  harmony  with  and  not  repugnant  to  the 
law.”  This  we  can  do,  and  when  it  is  done  our  com- 
mission ends.  The  consideration  which  has  the 
greatest  weight  with  me  is  that  no  one  has  proposed  a 
better  plan,  the  only  alternative  offered  being  the 
appointment  of  a receiver,  a receiver  for  corporations 
solvent  and  prosperous.  I agree  with  the  Attorney 
General  that  such  a calamity  should  be  avoided, 
except  as  a last  resort.  It  is  impossible  to  forecast  the 
disaster  which  would  follow  such  a step.  It  would 
wreck  a flourishing  business  upon  which  an  army  of 
employees  are  depending  for  a livelihood,  it  would 


28 


unsettle  trade  and  it  would  punish  with  equal  severity 
the  innocent  and  the  guilty.  More  than  this,  I am  by 
no  means  convinced  that  it  would  not  produce  the  very 
evil  which  this  action  was  instituted  to  destroy.  A 
receiver  can  dispose  of  the  property  in  his  hands  only 
by  a judicial  sale  to  the  highest  bidder,  who  will  take 
title  sanctioned  by  a decree  of  the  court  creating  the 
receivership.  In  the  present  case,  the  men  best 
equipped  to  make  this  bid  are  the  very  men  wTho  now 
control  the  condemned  corporations.  It  is  surely  pos- 
sible, if  not  probable,  that  the  property  might  thus 
come  under  their  control  with  a title  which  will  render 
them  immune  from  further  prosecution.  For  these 
reasons,  thus  briefly  stated,  I think  that  the  plan,  with 
the  amendments  directed  by  this  court,  should  be 
adopted. 


United  States  Circuit  Court,  Southern  District  of  New  York. 


The  United  States  of  America 
v. 

The  American  Tobacco  Company  et  al. 


BEFORE  LACOMBE,  COXE , WARD,  AND  NOYES, 

CIRCUIT  JUDGES. 


Noyes,  Circuit  Judge  (concurring): 

The  Supreme  Court  of  the  United  States,  after 
finding  the  illegality  of  this  combination  placed  the 
duty  upon  this  court  of  hearing  the  parties — 

for  the  purpose  of  ascertaining  and  determin- 
ing upon  some  plan  or  method  of  dissolving 
the  combination  and  of  re-creating,  out  of  the 
elements  now  composing  it,  a new  condition 
which  shall  be  honestly  in  harmony  with  and 
not  repugnant  to  the  law. 

And  the  Supreme  Court  added  these  words: 

In  view  of  the  considerations  which  we  have 
stated,  we  leave  the  matter  to  the  court  below 
to  work  out  a compliance  with  the  law  with- 
out unnecessary  injury  to  the  public  or  the 
rights  of  private  property. 

By  these  directions  this  court  is  required  to  enter 
into  the  examination  of  questions  economical  as  well 

(29) 


30 


as  legal  and  to  depart  from  the  function  of  determin- 
ing existing  controversies  to  the  decision  of  the 
legality  of  future  proposed  action.  The  duty  im- 
posed is  extraordinary  because  the  Supreme  Court  in 
imposing  it  was  dealing  with  an  extraordinary  situa- 
tion. 

The  question  was  as  to  the  relief  to  be  afforded. 
A decree  forbidding  corporate  stockholding  would 
have  been  inadequate,  because  the  combination  was 
largely  based  upon  property  ownership.  Original 
conditions  could  not  be  restored.  Immediate  ex- 
treme measures  would  have  inflicted  irreparable  in- 
jury upon  innocent  interests.  It  was  necessary  to 
provide  a method  for  determining  in  advance  whether 
a proposed  plan  of  disintegration  would  harmonize 
with  the  law,  and  hence  the  direction  to  this  court. 

The  magnitude  and  varied  nature  of  the  assets  of 
the  combination,  the  extent  of  its  liabilities,  the 
ramifications  of  its  business,  and  the  complexity  of 
its  affairs  would  make  our  duty  difficult  if  we  were 
required  merely  to  apply  rules  of  dissolution  and  re- 
creation prescribed  by  the  Supreme  Court.  But 
from  the  very  intricacy  of  the  case  there  are  no  rules. 
We  are  left  without  guide  to  turn  a condition  in  vio- 
lation of  the  law  into  a condition  honestly  in  harmony 
with  it.  The  only  measure  of  the  extent  of  re- 
habilitation required  is  the  object  to  be  attained. 
The  evils  found  to  exist  alone  indicate  the  measures 
required  to  meet  them. 

If,  then,  we  approach  the  performance  of  our  duty 
without  an  appreciation  of  the  complexity  of  the 


31 


problem  and  of  the  difficulties  under  which  the 
formulators  of  any  plan  must  labor,  we  will  not  go 
far.  If  we  are  not  satisfied  with  a substantial  com- 
pliance with  the  law;  if  we  strain  after  the  ideal  and 
put  aside  the  practicable,  it  will  be  easy  to  bring  on 
a receivership  with  its  attendant  losses  to  innocent 
investors.  But  that  result  was  what  the  Supreme 
Court  was  solicitous  of  avoiding,  and  I think  it  in- 
tended that  we  should  recognize  the  problem  pre- 
sented to  us  as  a very  practical  one  to  be  disposed  of 
in  a practical  way.  Moreover,  in  the  performance  of 
our  duty  we  owe  much  to  the  Attorney  General,  who, 
while  always  insisting  upon  the  rights  of  the  public, 
and  by  such  insistence  bringing  the  plan  into  its 
present  shape,  has  nevertheless — as  it  has  seemed  to 
me — felt  that  he,  too,  owed  a duty  to  protect  inno- 
cent interests  and  not  to  cause  ruin  and  disaster  by 
forcing  extreme  measures  which  might,  even  from 
the  public  point  of  view,  in  the  end  produce  no  better 
results  than  those  at  hand,  and  possibly  infinitely 
worse. 

Taking  up  the  plan,  we  know  at  the  outset  that  it 
is  an  honest  one.  It  has  been  built  up  almost  in  our 
presence  and  whatever  question  there  may  be  as  to  its 
merits,  there  is  none  of  the  good  faith  of  its  authors 
nor  of  the  ability  and  conscientiousness  with  which 
they  have  performed  their  task. 

The  present  combination  has  vast  capitalization 
and  assets.  The  corporations  of  the  plan  will  have 
large  capitalization  and  assets.  Whether  that  is 
an  objection  should  be  considered. 


32 


The  Supreme  Court  did  not  condemn  the  combi- 
nation on  account  of  the  great  amount  of  property 
which  it  had  acquired.  Indeed  it  must  now  be 
accepted  that  magnitude  of  business  in  and  of  itself 
does  not  constitute  unlawful  monopoly,  at  least  up  to 
the  point  where  economy  of  production  and  manage- 
ment are  thereby  promoted.  There  must  be  some- 
thing more — some  unlawful  or  oppressive  act  or 
purpose  in  acquiring  the  business  or  after  its  acqui- 
sition— to  come  within  the  condemnation  of  the 
statute.  But  it  can  not  be  denied  that  there  is  an 
enormous  inherent  and  collateral  power  incident  to 
the  holding  by  a single  corporation  of  vast  assets 
which  no  group  of  individuals  although  having  similar 
possessions  could  obtain.  There  is  such  a poten- 
tiality of  monopolization  that  a court  in  striving  to 
bring  about  a condition  in  harmony  with  the  law, 
should  hesitate  to  approve  the  existence  of  a pro- 
ducing corporation  having  vast  assets  not  necessary 
for  the  work  of  production.  Consequently  when  it 
appeared  in  the  formulation  of  this  plan  that  the 
American  Tobacco  Company  was  to  receive  from  the 
other  corporations  over  a hundred  million  dollars  in 
cash  and  securities  which  it  was  required  to  hold  to 
meet  its  indebtedness  but  which  it  did  not  need  in 
its  business,  the  plan,  notwithstanding  many  valuable 
features,  seemed  unacceptable.  But,  meeting  the  ob- 
jections of  the  Attorney  General,  a way  was  found — 
as  shown  in  the  plan — of  appropriating  those  funds  to 
the  payment  of  debts  so  that  the  readjusted  American 
Company,  still  the  largest  of  all,  will  possess  some 
one  hundred  millions  of  property — mostly  working 


33 


assets  and  brand  values — as  compared  with  the  three 
hundred  millions  it  formerly  held.  In  view  of 
modern  commercial  conditions,  I think  that  the 
court  should  make  no  objection  to  the  mere  size  of  the 
corporations  of  the  plan. 

Taking  up  the  question,  then,  whether  the  plan 
gives  effect  to  the  statute,  the  answer,  as  we  have 
seen,  depends  upon  whether  it  remedies  the  condi- 
tions found  to  violate  the  statute,  and  it  is  necessary 
to  turn  to  the  decision  of  the  Supreme  Court  to  find 
out  those  conditions. 

Without  examining  the  decision  in  detail,  it  is  suffi- 
cient here  to  say  that  the  court  found  broadly  the 
combination  to  be  in  restraint  of  trade  within  the1  \i 
first  section,  and  an  attempt  to  monopolize  and  a\ 
monopolization  within  the  second  section,  of  the  stat-  'j 
ute.  In  particular  the  court  found  among  the  bases  \ 


for  its  conclusions : (a)  Covenants  of  vendors  and  oth-  \ 


ers  binding  themselves  for  long  periods  not  to  com- 


pete with  the  combination;  ( b ) the  absorption  of  the  j 
control  of  corporations  supplying  the  elements  essen-  I 
tial  to  the  manufacture  of  tobacco  products  and  other  j 


corporate  stockholding;  (c)  the  existence  of  control- 
ling “power  in  the  hands  of  the  few”;  (d)  the  obtain- 
ing of  control  of  the  tobacco  trade  by  wrongful  and 
oppressive  acts,  agreements,  and  arrangements. 

Obviously,  the  evil  of  restrictive  covenants  must  be 
met  by  the  termination  of  such  covenants,  and  that 
is  accomplished  by  the  plan.  It  provides  for  the 
abrogation  of  all  covenants  made  by  vendor  corpora- 


tions,  partnerships  or  individuals  not  to  engage  in 
the  tobacco  business,  and  for  the  termination  of  for- 
eign restrictive  covenants. 

The  evil  of  controlling  the  production  of  the  ele- 
ments essential  to  tobacco  manufacture  must  be  met 
by  requiring  the  tobacco  manufacturing  corporations 
to  be  disconnected  from  the  production  of  such  ele- 
ments. This  seems  to  be  fairly  accomplished  by  the 
plan.  The  shares  held  by  the  combination  in  the 
corporation  manufacturing  tin  foil  and  the  voting 
shares  held  in  the  corporation  manufacturing  licorice 
are  to  be  distributed.  When  that  is  done,  none  of 
the  tobacco  manufacturing  companies  of  the  plan  will 
have  any  legal  domination  over  the  production  of 
these  essentials.  So  the  evil  of  corporate  stockhold- 
ing is  met  by  divesting  the  American  Company  of  any 
interest  in  the  snuff  business,  in  the  retail  cigar  busi- 
ness, and  of  its  shares  in  other  important  corpora- 
tions. 

The  evils  pointed  out  by  the  Supreme  Court  grow- 
ing out  of  the  existence  of  power  in  the  hands  of  a 
few  to  control  the  combination  must  be  met  by  the 
destruction  of  such  power.  This  power  had  its 
basis  in  the  holding  of  a majority  of  the  voting  shares 
of  the  American  Company  by  the  individual  defend- 
ants in  this  suit.  It  is  proposed  to  destroy  this  power 
by  giving  the  preferred  stock  of  the  American  Com- 
pany, which  has  heretofore  had  no  voting  rights,  full 
voting  power;  by  creating  voting  rights  in  the  pre- 
ferred shares  of  other  corporations,  and  by  so  dis- 
tributing shares  that,  in  the  language  of  the  petition : 


35 


No  small  group  of  men,  nor  even  the  twenty- 
nine  individual  defendants  in  the  aggregate, 
will  own  the  control  of  any  of  the  principal, 
accessory  or  subsidiary  companies  defendant, 
and  the  control  of  the  American  Tobacco  Com- 
pany itself  and  of  the  new  companies  to  be 
formed  will  be  vested  in  a body  of  more  than 
six  thousand  stockholders. 

In  addition  to  these  provisions  this  court,  at  the 
instance  of  the  Attorney  General,  will  guard  against 
the  acquisition  by  the  defendants  of  control  in  the 
future  by  enjoining  them  from  increasing  their  aggre- 
gate shareholdings. 

With  this  additional  provision  I think  the  require- 
ment that  power  of  control  be  taken  out  of  the  hands 
of  the  individual  defendants  sufficiently  met.  It  is 
true  that  while  shorn  of  legal  control,  they  will  own 
substantial  minority  interests  in  the  different  corpo- 
rations and  that  in  the  practical  workings  of  the 
affairs  of  a corporation  a minority  interest,  through 
the  inaction  of  the  majority,  may  often  control  it. 
But  the  control  of  a corporation  lies  in  the  majority 
of  its  shares  and  if  we  see  that  the  legal  control  of 
these  corporations  is  placed  in  other  hands  than  those 
of  the  defendants,  I think  that  we  go  far  enough.  In 
my  opinion  we  are  not  called  upon  to  guard  against 
the  possible  failure  of  the  majority  to  exercise  its 
power. 

The  next  inquiry  is  whether  the  plan  fairly  meets 
the  evil  of  obtaining  control  of  the  tobacco  trade  by 
oppressive  tactics  as  well  as  the  broad  conclusion  of 
illegality.  And  my  opinion  is  that  it  does  in  case, 


36 


WW  s 


but  only  in  case,  the  state  of  monopoly  found  to  exist 
is  ended  by  a division  of  business  and  a state  of  reas- 
onably competitive  conditions  established. 

This  is  the  state  of  monopoly  which  now  exists: 
The  American  Company,  either  directly  or  through 
its  ownership  of  stock  in  other  corporations,  controls 
the  manufacture  of  75  per  cent  of  the  smoking  tobacco 
manufactured  in  the  United  States;  80  per  cent  of  the 
plug  tobacco;  79  per  cent  of  the  fine  cut;  80  per  cent 
of  the  cigarettes;  13  per  cent  of  the  cigars;  90  per  cent 
of  the  snuff,  and  93  per  cent  of  the  little  cigars. 

Broadly  speaking,  the  proposed  plan  of  disintegra- 
tion is  to  divide  the  tobacco  business  among  four 
corporations,  no  one  of  which  is  to  have  a controlling 
interest  therein.  When  the  disintegration  is  accom- 
plished, the  business  will  be  so  distributed  that  no 
company  will  have  substantially  over  40  per  cent  in 
volume  or  value  of  any  particular  line.  Furthermore, 
I am  satisfied  that  there  is  to  be  a fair  distribution  of 
brands  as  well  as  of  business. 

Without  examining  the  details  of  the  plan,  it  is 
enough  to  say  that  careful  study  of  it  has  convinced 
me  that,  in  so  far  as  the  distribution  of  business  is 
concerned,  sufficient  has  been  done  to  end  the  state  of 
monopoly  and  to  establish  reasonable  competitive 
conditions.  If  practicable,  it  might  have  been  more 
desirable  to  divide  the  business  into  a greater  number 
of  parts.  But  as  the  plan  stands  it  can  not,  in  my 
opinion,  be  said  that  any  one  of  the  corporations  will 
\ have  such  preponderating  influence  in  the  tobacco 
industry  as  to  give  it  power  to  control  the  market 


37 


either  as  manufacturer,  seller,  or  purchaser.  The 
possibility  of  future  acts  of  oppression  is  to  be  guarded 
against  by  a comprehensive  injunction. 

This  brings  us  to  the  final  question,  which  is  whether 
the  fact  of  common  stockholding  is  a material  objec- 
tion to  the  plan. 

Obviously,  common  ownership  in  the  shares  of  the 
various  corporations  can  not  well  be  avoided.  Each 
stockholder  of  the  American  Company  has  an  undi- 
vided interest  in  its  property  remaining  after  the 
payment  of  its  debts.  When  its  assets  are  dis- 
tributed among  stockholders  each  is  entitled  to  his 
proportionate  share.  When  such  distribution  takes 
the  shape  of  corporate  shares,  the  necessary  result  is  a 
common  ownership  of  stock  in  different  corporations. 
I am  not  convinced  that,  in  the  absence  of  statutory 
authority,  any  division  by  valuation  and  allotment 
could  be  effected,  and  if  legally  possible  it  is  evident 
that  the  complicated  conditions  which  would  neces- 
sarily arise  in  carrying  it  out  would  render  it  imprac- 
ticable within  the  time  prescribed  by  the  Supreme 
Court  for  the  disintegration  of  this  combination. 

The  objection  to  mutual  stockholding  is  not 
that  competition  is  eliminated  in  principle.  Poten- 
tial competition  necessarily  exists.  The  same  con- 
ditions do  not  continue  indefinitely.  Stockholders 
die  and  estates  are  divided.  Differences  of  opinion 
upon  values  lead  to  sales  and  exchanges.  Potential 
competition  with  an  open  market  must  fairly  end 
in  real  competition.  But  the  objection  is  to  present 
and  not  future  conditions,  and  from  an  economic 


38 


point  of  view  I have  always  thought  it  entitled 
to  serious  consideration.  Manifest  difficulties  must 
attend  the  establishment  of  real  competition  between 
different  corporations  having  the  same  body  of 
stockholders.  In  the  case  of  small  corporations 
having  few  stockholders  who  directly  participate 
in  their  management,  they  would  be,  perhaps, 
insuperable.  They  would  decrease  in  proportion  to 
the  increase  in  the  size  of  the  corporations  and  the 
separation  of  the  stockholders  from  the  active 
management  of  their  affairs,  until,  as  I view  it, 
in  the  case  of  the  disintegration  of  a corporation 
having  vast  assets  and  a very  large  number  of 
scattered  stockholders,  they  would  be  so  minimized 
as  hardly  to  warrant  consideration  even  from  an 
economic  standpoint. 

That  which  has  made  me  pause  in  the  present 
case  is  the  concentrated  common  stockholding  of 
the  individual  defendants,  but  after  careful  con- 
sideration I have  reached  the  conclusion  that  the 
objection  should  not  operate  to  prevent  the  accept- 
ance of  the  plan,  but  should  call  for  most  rigorous 
measures  of  injunctive  relief  to  keep  the  various 
corporations  apart,  independent  and  free  from  con- 
nections or  arrangements  to  prevent  competition. 
In  reaching  this  conclusion  I am  influenced  by  the 
proposition  stated  at  the  outset  that  we  should 
take  care  that  we  do  not  by  seeking  the  ideal  reject 
the  practicable  and  put  in  peril  innocent  property 
interests,  and  I am  controlled,  as  I view  it,  by  the 
decisions  of  the  Supreme  Court  in  the  Northern 


39 


Securities  and  Standard  Oil  cases.  It  is  impossible 
for  me  to  read  those  decisions  without  being  con- 
vinced that  the  Supreme  Court  in  remanding  this 
case  to  us  did  not  intend  that  we  should  reject  a 
plan  upon  the  ground  of  pro  rata  distribution. 
I am  also  influenced,  if  not  controlled,  by  the  position 
taken  by  the  Attorney  General — the  representative 
of  the  party  plaintiff  in  the  cause. 

So  taking  the  plan  as  a whole,  with  the  essential 
measures  of  injunctive  relief  proposed  by  the  Attorney 
General,  I think  that  it  meets  the  principal  evils 
pointed  out  in  the  opinion  of  the  Supreme  Court; 
that  it  brings  about  a condition  fairly  in  harmony 
with  the  law,  and  that  it  is  the  duty  of  this  court  to 
approve  it  as  the  best  solution  possible  under  all  the 
circumstances  of  a very  difficult  practical  problem. 

In  conclusion:  The  extent  to  which  it  has  been 
necessary  to  tear  apart  this  combination  and  force  it 
into  new  forms,  with  the  attendant  burdens,  ought  to 
demonstrate  that  the  Federal  antitrust  statute  is  a 
drastic  statute  which  accomplishes  effective  results; 
which,  so  long  as  it  stands  on  the  statute  books  must 
be  obeyed,  and  which  can  not  be  disobeyed  without 
incurring  far-reaching  penalties.  And,  on  the  other 
hand,  the  successful  reconstruction  of  this  organiza- 
tion should  teach  that  the  effect  of  enforcing  this 
statute  against  industrial  combinations  is  not  to 
destroy  but  to  reconstruct;  not  to  demolish  but  to  re- 
create in  accordance  with  the  conditions  which  the 
Congress  has  declared  shall  exist  among  the  people 
of  the  United  States. 


40 


I concur  in  the  opinion  of  Judge  Lacombe  and  fully 
approve  his  disposition  of  the  subjects  not  considered 
in  this  opinion. 

O 


